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Hermes Investment Management, the £29.8 billion manager focused on delivering superior, sustainable, risk adjusted returns to its clients – responsibly, has today published the second paper off the back of its annual Responsible Capitalism survey. Responsible Capitalism and Diversity has revealed that despite a number of high-profile campaigns on gender diversity, less than a quarter of institutional investors surveyed believe female representation at board level to be important.

The results of the ground-breaking study of 109 UK and European institutional investors are supported by a number of industry reports that indicate while perceptions may be broadly changing on gender diversity, there are still significant gaps in pay and board representation.

Harriet Steel, Head of Business Development, Hermes Investment Management said: “On the surface, the corporate world is making great strides in improving its record on diversity. There are greater numbers of women and ethnic minorities in increasingly senior positions. Even in male-dominated sectors, such as financial services, some of the most important leadership positions – US Federal Reserve chair, managing director of the IMF, head of the US Securities and Exchange Commission – are now held by women.”

However, she warns the Hermes survey reveals a less encouraging picture, with only 23% of institutional decision-makers placing importance on gender diversity at board level.

Steel continued: “The results are disappointing and show there is some way before the glass ceiling is cracked in the board room and on issues of pay. There have been a number of high-profile campaigns to improve diversity on boards, notably from groups such as the 30% Club. However, while these campaigns have achieved some progress, it is clear UK plc is still poorly diversified at senior management level”.

Steel’s views are backed up by ‘Women on Boards’, Davies Review Annual Report 2015. The report shows the number of women holding executive level positions has only increased from 5.5% to 8.6% in five years.

Pay disparity gap still significant

There are also still significant gaps on pay. Female bosses earn around three-quarters of what their male colleagues earn, with the average pay gap between men and women aged between 46 and 60 sitting at £16,680. This is even more pronounced at director level. (National Management Salary Survey, Chartered Management Institute, 2014).

Legislation to force companies to disclose pay differences between men and women has never been enacted by government, and corporate practice on this remains inconsistent.

On a more positive note, 53% of those surveyed believe that ‘diversity of experience’ is important, and 69% believe board independence is important. However, Steel argues this may be because regulatory attention has been focused on these areas.

“The corporate governance argument for the separation of the chairman and CEO role, for example, or of paying attention to a company’s carbon footprint, has been well-made and widely accepted. But the reality is the diversity argument still has less resonance for many companies. Senior management can often see diversity as a legislative chore, or simply another compliance target to be met. This is less institutional sexism or racism, but more a failure to recognise why diversity is important and the advantages it brings to a business. Senior executives may have sympathy with the social case for achieving a greater mix within their businesses, but few see it as a necessity for achieving the right balance of growth and risk management,” said Steel.

The Hermes report gives evidence to Steel’s view, with an overwhelming majority of those surveyed not in favour of any regulator-imposed diversity criteria, and just 19% of respondents supportive of regulatory change at senior management level.

Can gender or racial and ethnic diversity improve performance?

Steel also says the argument for diversity is not simply the better management of risk, but that there are sound arguments it contributes to overall returns. For example, a January 2015 study by McKinsey & Company, ‘Why Diversity Matters’ found that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians.

Steel stated: “The main goal of board independence and diversity of experience is not simply to tick a corporate governance box. It is to avoid the pernicious and value-destroying practice of ‘group think’. The perils of this type of culture have been seen in corporate scandal after corporate scandal – Enron, Barings, sub-prime loans, the banking crisis, to name just a handful. It may be convenient for the members of a board to think in the same way, but it is rarely good for business”.